How To Insure Your House

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Published: June 2, 2011 2:39 p.m. ET

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Many Americans may find they don't have enough coverage.

Your house is likely one of your most valuable assets and, depending on the age of your home, its condition, and where you live, the cost of insuring your house can vary significantly. Many Americans may find they don't have enough coverage -- which can lead to even more costs when something goes wrong.

About 64% of U.S. houses were undervalued by their insurance providers, according to a 2008 survey from consultant Marshall & Swift/Boeckh, meaning they wouldn't have enough insurance to fully repair or rebuild their house after a disaster. Here are steps to make sure your home insurance is adequate.

Shop for the right policy.It's important to understand the types of companies you're working with, and the variety of plans available.

Know the types of insurance companies. Direct sellers, such as Geico or Progressive, peddle insurance directly to consumers, typically over the phone or online. Captive agents, a sales model used by Allstate and State Farm, normally have a contract with one insurance company. Independent agents can sell policies from several companies. Using an independent agent can help you get multiple quotes from several companies at once, but it's worth checking out packages from all three types of companies since commissions and packages will vary.

Request quotes and compare. See what your plan would cost if you got several insurance policies with the same company. Also, be aware that premiums will typically include a 10 to 15% commission when you're dealing with an insurance agent, so make sure the plan offers enough value for your money.

Choose a replacement cost plan, rather than actual cash value. A replacement cost plan covers the amount it would take you to repair or rebuild your house with similar materials, not taking into account how much your home may have depreciated. This is separate from the market value of your home.

Know what is -- and is not-- covered. There are many common incidents that can cause real damage to your home, but are likely excluded from your policy.

Get familiar with the basics. Standard plans usually cover the costs of repairing or rebuilding the house and other structures, such as a garage or shed. Plans also cover medical expenses and protect against claims or lawsuits resulting from accidents on your property or caused by residents or pets.

Know the common exceptions. Most standard insurance policies do not cover flooding, damage from animals and insects and intentional damage to the property. In some states, you may also have to pay more to cover windstorms or earthquakes.

Be skeptical of "guarantees." Some insurance companies will offer select customers guaranteed replacement cost plans, meaning they will cover the costs of rebuilding your home even if it exceeds your policy amount. However those plans cost more than standard plans and are sometimes capped at 125% of the insurance amount, meaning they will only pay 25% beyond the dollar amount of your current policy.

Buy extra coverage if needed. You may need an additional coverage against lawsuits or to protect expensive jewelry, antiques and artwork.

Expand your liability coverage. Most standard plans cover either $100,000 or $300,000 of liability coverage, which pays for lawsuits against you, out of your home. You can boost that liability coverage to $1 million through an umbrella liability policy, which costs about $150 more a year.

Make sure personal belongings are covered. As you collect more valuables, you should increase the personal property protection to make sure it is enough to cover your jewelry and other expensive belongings. Appraisals can help determine the value of your possessions so you know how much insurance to buy and so you can have proof of what the items cost.

Get government help. If you live in an area that is prone to flooding, look into purchasing flood insurance through the federal government's National Flood Insurance Program, which is managed by the Federal Emergency Management Agency (FEMA).

What not to do when looking to insure your house.

Don't buy policies from too many companies. Consolidating homeowners and auto policies can actually lead to a multi-policy discount. The commercials don't lie, but make sure that the policies actually make sense for you.

Don't ignore home improvements. Renovations and additions boost the quality of your home -- and raise the amount of insurance required. Make sure to check in with your insurance company after any major changes so that you don't end up with inadequate coverage.

Don't file unnecessary claims. Be efficient. Keep in mind that frequent claims lead to higher premiums, so avoid filing claims for minor damage. You might also choose a plan with a higher deductible -- and lower your premium -- if you are unlikely to file claims for damages that cost less than $500 or $1,000.

For more reading: Estimate the replacement cost value of your home at AccuCoverage. Get tips from the National Association of Insurance Commissioners on ways to boost home insurance at different stages of life. Ask your state insurance department about FAIR (Fair Access to Insurance Requirements) plans, which makes insurance available to people in areas where companies are not providing coverage.

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